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Regulatory influence on corporate cash holdings: Minority shareholder activism by regulators

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  • Chen, Rongrong
  • Chen, Xiaomeng Charlene

Abstract

Focusing on an exogenous shock to minority investor activism, we investigate the effect of the China Securities Investor Services Center (CSISC), a minority shareholder protection mechanism introduced by the China Securities Regulatory Commission, on corporate cash holdings. Using a firm-quarter sample of Chinese listed companies from 2015 to 2017, we find that firms increased their cash holdings after CSISC became a minority shareholder. Channel tests and estimates of the cash flow sensitivity of cash reveal that this increase is primarily driven by precautionary motives, as firms prepare for potential financial uncertainties under CSISC's oversight. We further explore the role of governance-related factors—internal control quality, institutional ownership, and analyst coverage—and find that while CSISC's involvement strengthens governance by mitigating agency motives, it maintains a strong precautionary basis for increased cash holdings in response to heightened regulatory monitoring. This research highlights CSISC's critical role in influencing corporate liquidity management and enhancing investor protection in emerging markets.

Suggested Citation

  • Chen, Rongrong & Chen, Xiaomeng Charlene, 2025. "Regulatory influence on corporate cash holdings: Minority shareholder activism by regulators," International Review of Financial Analysis, Elsevier, vol. 102(C).
    • Handle: RePEc:eee:finana:v:102:y:2025:i:c:s1057521925001929
    DOI: 10.1016/j.irfa.2025.104105
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    Keywords

    CSISC; Cash holdings; Precautionary motive; Agency motive;
    All these keywords.

    JEL classification:

    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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